Direct State Provision Flashcards

1
Q

Diagram analysis

A
  • The government may decide to provide a merit good by direct state provision and supply all of the resources in the market.
  • Perfectly inelastic supply curve
  • Demand curve slopes downwards
  • market is provided free at the point of consumption
  • Supply fixed at Q1 = consumers receive free.
  • consumers past Q1 excluded
  • aims to solve problem of overconsumption/ overproducton
  • more socially efficient
  • reduce welfare loss
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2
Q

advantages of direct state provision

A
  • no price exclusion
  • government attempts to consider what society desires
  • resource allocation improves
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3
Q

Disadvantages of direct state provision

A
  • goods provided free at point of use pressure on govt.
  • How should excess demand be rationed
  • direct provision is expensive
  • intervention could exacerbate the market failure
  • state-run organisations be wasteful (no invisible hand)
  • private sector is completely ignored
  • what is socially optimal level?
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